NZ tech start-ups advised to ‘be a painkiller, not a vitamin’

Venture capitalist Lance Wiggs looks at the New Zealand tech start-up ecosystem post-lockdown.

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Venture capitalist Lance Wiggs is advising tech start-ups to “be a painkiller, not a vitamin”, if they want to survive, and even thrive, in the economic conditions that are unfolding in New Zealand and around the world due to the COVID-19 pandemic.

While recessions aren’t necessarily the best time to start a business, opportunities do exist for founders of new ventures who are prepared to seek them out. “Tough times are when people make decisions quickly, so make sure you are in there talking to people so that when they make a decision it can be made in your favour,” Wiggs advises.

Wiggs manages the Punakaiki Fund, a $55.3 million fund that invests in high-growth tech companies with a special interest in SaaS revenue models. He told an IT Professionals online event that the companies in the Punakaiki portfolio doing the best through the COVID-19 pandemic are those providing an essential service to their user base. An example is Mobi2Go, which enables hospitality businesses to provide online and text ordering, and another is Melon Health, which provides a platform for the delivery of mental health services.

Wiggs’s advice on where to invest—and where not to

In addition to sectors, markets are also having a big impact on company’s success—Australia and New Zealand are doing well because of how the countries are handling the pandemic. The US, not so much. “The folks exposed to the USA in particular, I’m quite worried about that in the medium prospects for that, because their market is very fragile,” he says.

Meanwhile, for those wondering where to invest their money post-lockdown, Wiggs cites four areas:

  • climate change solutions because this is a problem bigger than the pandemic (and there is a kind of moral obligation to invest in solutions)
  • essential services
  • distressed assets
  • cash

Absent on the list is the stock market, which he quotes a founder as describing as being in “bizarro land”. “Anyone exposed to the stock market is probably really happy right now if they stayed in, or got back in; however, Judgement Day will come.”

Wiggs is also not a fan of blockchain. “I look at blockchain as a not particularly efficient database with a niche edge case,” he says. “A lot of people conflate it with the coins as well, and the coins have driven the adoption of blockchain. But you tend to get people who don’t understand how currencies and business works, and who don’t understand how technology works … Fundamentally, countries have militaries and the ability to tax you and it doesn’t really matter what mechanism you are trying to use as your medium of exchange—they’re going to get you.”

As for the Punakaiki Fund, Wiggs says the team look for four things before deciding to invest in a business:

  • Does the founder understand the user and the problem they are solving?
  • Does the company have actual paying customers?
  • Can the founder attract the right people and build a great team?
  • Do the numbers stack up?

Start-ups can look to the NZ government’s VC fund

Tech start-ups requiring venture capital can look to the first funding rounds prompted by the $300 million government-backed Elevate NZ Venture Fund, which is expected to make its first allocation(s) later this year. The Elevate Fund is designed to increase the amount of capital available to NZ start-ups by investing  in venture capital firms that are themselves looking to invest in NZ start-ups (subject to those funds raising matching private investment).

Elevate Fund investment director James Pinner says the fund has received 15 applications, and is currently conducting screening and/or due diligence on a number of applications. He expects the Fund will make the first allocations in the next few weeks. When asked when those funds are likely to start investing in start-up companies, Pinner wasn’t able to provide a timetable.

“It is hard to determine as it depends on the timing of each fund we invest in but it is likely to occur sometime in Q3 2020,” he says.

Copyright © 2020 IDG Communications, Inc.

  
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